British entrepreneur Mike Lynch has angrily rejected allegations made on
Tuesday that his software company Autonomy inflated its financial results
before selling it to Hewlett-Packard for $11.1bn (£7bn).

Shares in HP tumbled more than 11pc after the Silicon Valley company said the alleged wrongdoing at Autonomy would drive an $8.8bn writedown on its assets.Photo: Reuters

Shares in HP tumbled more than 11pc after the Silicon Valley company said the alleged wrongdoing at Autonomy would drive an $8.8bn writedown on its assets.

"They [the allegations] are completely and utterly wrong and we reject them completely," said Mr Lynch, who made about $800m when HP acquired Autonomy last year. HP said it began an investigation into Autonomy's accounting practices this year after a senior executive at the UK company raised the alarm.

Autonomy, which Mr Lynch founded in 1996 in Cambridge, is accused by HP of misrepresenting sales of hardware as more lucrative software, and recording as revenue sales made only to re-sellers of its products rather than end users. The result, according to HP chief executive Meg Whitman, was that Autonomy was "smaller and less profitable than we thought".

The findings of HP's internal inquiry have been sent to the US Securities and Exchange Commission and the Serious Fraud Office in the UK for criminal investigation.

The Californian company, which is battling to reinvent itself as PC sales decline, said it would pursue various parties through the courts to recover some of the money it spent buying Autonomy. As the news was digested on both sides of the Atlantic, questions were raised about the due diligence HP conducted when it bought Autonomy. Accounting firm KPMG, Barclays and US boutique firm Perellia Weinberg all advised HP on the deal.

Ms Whitman, who joined HP a month after the acquisition was announced, defended the process, arguing: "When you are lied to, it is hard to find."

As well as hiring KPMG, HP said that it relied on the audits of Deloitte, which was Autonomy's long-term auditor. "Deloitte is not exactly brand X accounting firm," Ms Whitman said. "It is a little challenging to go in and say, gee, we need to double-check Deloitte."

HP declined to say whether Deloitte had done anything wrong or whether it would be pursuing the accounting firm. Deloitte said it would co-operate with any investigations authorities conduct.

Although HP made the accusations, they also represent a serious challenge for Ms Whitman as she tries to convince Wall Street she can turn around the company. After the $8.8bn writedown, HP on Thursday reported a loss of $6.85bn for the fourth quarter.

HP first swooped on Autonomy, whose software helps companies structure data such as emails and voicemails, to wean itself off the declining PC market. Ms Whitman, who was appointed after her predecessor, Leo Apotheker, was ousted following the Autonomy acquisition, insisted Autonomy will remain a key part of HP's future.